WASHINGTON -- Donald Rumsfeld declared war on the Pentagon bureaucracy on a quiet, sunny Monday seven months into his tenure as secretary of defense. Never known for his tact, Rumsfeld delivered his battle cry to a room full of Pentagon bureaucrats, who stared back at him in stunned silence. Few in the media took note of the speech, delivered on Sept. 10, 2001.
Over the next 24 months, Rumsfeld waged his war on bureaucracy by outsourcing thousands of functions performed by the Defense Department to private contractors -- and nowhere more so than in Iraq. From its earliest planning stages in 2002 to its sputtering conclusion a decade later, the Iraq War was a public-private partnership.
The U.S. government supplied troops and assembled an international "coalition of the willing." The private sector provided a shadow army of hundreds of thousands of contractors, who supplied Americans on the front lines with everything from meals, laundry and housing, to drivers, translators, bodyguards and garbage collectors.
The massive outsourcing of the Iraq War marked a new phase in America's military industrial complex. Iraq was not the U.S. government's war alone. It was a joint venture, orchestrated with an unspoken understanding that the private sector was the U.S. government's most important ally.
Many of the private contractors in Iraq performed their duties admirably, but the story of the war is riddled with allegations of contractor fraud and abuse. They range from tales of U.S. defense and oil conglomerates overbilling the government, to companies sending unqualified employees to the now-infamous Abu Ghraib prison, to the most troubling allegations of contractors having murdered Iraqi noncombatants.
Until recently, many of the war's most controversial, and well-paid, U.S. contractors faced relatively few repercussions for their conduct in Iraq. During the war, they operated outside Iraqi jurisdiction, thanks to a rule implemented by the Coalition Provisional Authority, known as Order 17. Some companies relied further on secret indemnity agreements with the federal government, which protected them from future liability in the U.S.
But a handful of court rulings in the past two years have put big-name Iraq War contractors on the defensive against allegations of torture, fraud, negligence and extrajudicial killings. Faced with a shrinking U.S. war budget and unpredictable trial courts, some companies have chosen to settle these claims for millions of dollars. Others have left the country or dissolved their businesses. Some have done both.
Still more lawsuits are now playing out in court. They are writing an important chapter in the effort to understand what really happened in Iraq.
COALITION OF THE BILLING
It's hard to overstate the influence of private contractors on the Iraq War. Starting in 2006, contractors' employees in Iraq outnumbered U.S. troops, a previously unthinkable situation for the American military. By the end of 2008, at the height of the war, there were about 180,000 contractors' employees in the country, providing both military and reconstruction services, and 146,000 U.S. troops.
Contractors helped the U.S. government avoid implementing a draft by keeping troop levels artificially low. But they came with a high price tag. Between 2003 and 2008, Congress estimated that the United States had spent $100 billion on contractors in Iraq, or one dollar out of every five spent on the Iraq War at the time. Today, assuming a conservative estimate of $800 billion spent on the war, at least $160 billion has likely ended up in the coffers of private contractors.
The ties between members of the George W. Bush administration and leaders of some of the nation's biggest oil and defense contractors have been well documented, most notably the future Vice President Dick Cheney's lucrative tenure as CEO of oil services giant Halliburton.
As the Bush administration ramped up its case for war against Iraq in late 2002, Halliburton was the only contractor invited to submit a proposal to restore Iraq's oil infrastructure following a U.S. invasion. Ten years ago this month, Cheney's former company was quietly awarded a $7 billion contract for the restoration work.
Over the next three years, Pentagon reports found that Halliburton charged the federal government nearly $2 billion in "unsupported costs." Many of these questionable expenses came via Halliburton's subsidiary, KBR, the largest military logistics supplier of the Iraq War. One former KBR employee, Linda Warren, described to Vanity Fair how KBR's laundry service billed the government $75 per bag of laundry washed, but paid an Iraqi subcontractor just $12 per bag to wash it. Concerned about potential liability for KBR's Iraq deeds, Halliburton finally spun off the subsidiary in 2007, the same year it moved its corporate headquarters and its CEO, Cheney protege David Lesar, to Dubai. The move raised eyebrows across the industry and the federal government.
Among Iraq War contractors, KBR stands out for both the size of its contracts -- $31.7 billion between 2001 and 2008 -- and the scope of its legal issues. In July 2012, the company finally won the dismissal of a wrongful death lawsuit filed by the family of a soldier electrocuted in Iraq in 2008. The judge ruled that the situation involved decisions made by both the U.S. military and KBR, and that the court did not have jurisdiction to question the military's decisions in the matter.
In November 2012, however, a jury found KBR guilty of negligence in the poisoning of eight soldiers in Iraq who were exposed to highly toxic chemicals. The company is appealing the decision. That same month, the Justice Department alleged in a lawsuit that KBR and a subcontractor knowingly overbilled the government for housing constructed in the early days of the Iraq War.
These cases are just a sample of what KBR currently faces in court. But legal problems aren't the company's only setback. The post-war drop in demand for its services helped drive down KBR's profits by nearly two-thirds in 2012, prompting CEO William Utt to explain to Wall Street that "2012 was, overall, a disappointing year for KBR." Utt's salary for that year was $7.9 million.
THE DOMINO EFFECT
In many cases, the close working relationships between contractors and U.S. personnel during the Iraq War have exacerbated the difficulty for the government in prosecuting contractors who violated U.S. laws or for alleged victims of contractor malfeasance in seeking redress. In February 2013, the Justice Department was forced to drop 15 felony indictments against employees of the private security firm formerly known as Blackwater after attorneys offered persuasive evidence in court that Blackwater had been working as a de facto arm of the CIA when the alleged violations occurred.
Blackwater, which changed its name to Xe Services in 2009 and then to Academi in 2011, is one of the most controversial of the Iraq War contractors. It was hired at the start of the war to provide diplomatic protection services. By 2005, Blackwater's contract had ballooned to more than $1 billion, as the company provided armed security guards for thousands of U.S. diplomats and other contractors in Iraq.
As security in Iraq grew more tenuous, Blackwater employees developed a reputation for being quick on the trigger. In 2007, they shot and killed 17 Iraqi civilians in a crowded square. A report issued by congressional Democrats that year found that Blackwater employees had fired first in more than 75 percent of nearly 200 incidents involving Iraqi casualties.
At the time, Blackwater CEO Erik Prince defended his people before Congress, but in 2010, after the firm was effectively shut out of a lucrative government contract to train Afghan police forces, Blackwater quietly agreed to pay $42 million to settle hundreds of charges that its employees violated export controls.
In late December 2010, Prince sold the firm to a group of investors for around $200 million. Court records revealed that a few months before the sale, Prince, a man who for years had described his private army as a patriotic endeavor, had moved his family to Abu Dhabi, not far from where Lesar, the Halliburton CEO, lives in Dubai.
In Abu Dhabi, Prince founded a new security firm, Reflex Responses, which quickly secured a contract worth more than half a billion dollars from the United Arab Emirates' rulers. Last year, he entered into business with a group of Chinese investors seeking natural resources in Africa.
Like Blackwater, two other firms, L-3 Services and CACI, are still in the process of settling claims related to Iraq War incidents -- specifically, allegations that their employees participated in the abuse of detainees at Abu Ghraib prison in late 2003. Both companies provided translators for the U.S. military, and former prisoners at Abu Ghraib allege that L-3 and CACI employees took part in the torture that exploded into an international scandal when photos appeared online in 2004.
Until November 2012, the two cases from Abu Ghraib had been held up for years over questions of whether non-citizens could sue a private U.S. company for abuse suffered while in U.S. government custody overseas. But in a surprise move that wasn't noted until January 2013, L-3 Services, now known as Engility Corporation, settled the allegations in November, agreeing to pay victims more than $5 million. The remaining case against CACI is scheduled to go to trial this summer.
As millions of citizens in Iraq and the United States pause this week to remember the enormous costs of the war -- in human life, treasure and global security -- the legal victories and fines levied against contractors years later will likely offer little solace. The reality is that for the small group of shareholders and executives at companies like Blackwater and Halliburton, the past decade was a perfect storm of opportunity, suitability and connections.
Should the American people want to know what investigators discovered about abuse and fraud by Iraq War contractors, they will have a chance to find out -- in 2031. That's when the results of a three-year study by the Commission on Wartime Contracting in Iraq and Afghanistan will be unsealed from the National Archives. The 240-page congressionally mandated report, delivered in 2011, details how the U.S. government misspent between $31 billion and $60 billion on the war's contractors.